Casserlie v. Shell Oil Co.
121 Ohio St. 3d 55, 902 N.E.2d 1 (2009)
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Rule of Law:
Under UCC § 2-305, a seller sets a price in good faith in an open-price term contract if the price is commercially reasonable and non-discriminatory among similarly situated buyers. When these objective criteria are met, a subjective inquiry into the seller's motive or intent is not permitted.
Facts:
- Donald Casserlie and other independent dealers leased gas stations from Shell and operated them as franchisees.
- The parties' contracts obligated the dealers to buy gasoline exclusively from Shell under an open-price term, where Shell set the wholesale price (the 'dealer-tank-wagon' or 'DTW' price) at the time of delivery.
- Shell also sold gasoline at a lower 'rack' price to 'jobbers,' which were independent companies operating non-Shell-owned stations who performed additional functions and bore additional risks.
- The dealers alleged that Shell's DTW price was often substantially higher than the rack price charged to jobbers, making it difficult for the dealers to compete and remain profitable.
- The dealers contended that this pricing was part of an intentional marketing plan by Shell designed to drive them out of business so Shell could take over their stations and profit from all sales.
Procedural Posture:
- Donald Casserlie and other dealers sued Shell Oil Company in an Ohio trial court, alleging bad faith price setting.
- The trial court granted summary judgment in favor of Shell.
- The dealers, as appellants, appealed to the Ohio court of appeals.
- The court of appeals affirmed the trial court's judgment for Shell, the appellee.
- The Supreme Court of Ohio then accepted the dealers' discretionary appeal.
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Issue:
Does a seller satisfy the Uniform Commercial Code's good faith requirement in setting a price under an open-price term contract by charging a price that is both commercially reasonable and non-discriminatory, thereby precluding a subjective inquiry into the seller's alleged bad faith motive?
Opinions:
Majority - Moyer, C.J.
No. A price that is both commercially reasonable and non-discriminatory fits within the safe harbor of UCC § 2-305 and complies with the statute’s good-faith requirement, precluding a subjective inquiry into the price setter's motives. The court reasons that Official Comment 3 to UCC § 2-305 provides a safe harbor for a 'posted price' in a 'normal case.' A price is commercially reasonable if it is within the range of competitors' prices, and it is non-discriminatory if it is applied uniformly to all similarly situated buyers. Adopting this objective test promotes the UCC's goals of certainty and predictability in commercial transactions. Allowing a subjective inquiry would eviscerate the safe harbor and lead to protracted litigation based on allegations of improper motive, even if the price charged was objectively fair. Here, Shell's prices were within the range of its competitors and were uniform for dealers within each pricing district. The price difference between dealers and jobbers was not discriminatory because they were not similarly situated buyers, as jobbers performed additional functions and assumed risks that dealers did not.
Dissenting - Pfeifer, J.
Yes. The good faith requirement should be subject to both objective and subjective inquiry, permitting an investigation into the seller's intent. The majority’s reliance on the UCC's Official Comment 3 safe harbor is misplaced because the Ohio General Assembly never formally adopted the comments, meaning the safe harbor is not part of Ohio law. The definition of 'good faith' for a merchant—'honesty in fact' and 'observance of reasonable commercial standards'—inherently includes both a subjective and an objective component. A seller could set a price that is technically non-discriminatory (by charging all franchisees the same ruinously high price) but do so with the subjective bad-faith intent to drive them all out of business. The majority's purely objective test creates a loophole that allows powerful franchisors to eliminate their contractual partners, transforming the marketplace into a 'law of the ocean' where 'the big fish are free to consume smaller fish at will.'
Analysis:
This decision establishes a clear, objective test for determining good faith in open-price contracts under Ohio's UCC, aligning the state with a majority of jurisdictions. By creating a 'safe harbor' for prices that are commercially reasonable and non-discriminatory, the court prioritizes commercial certainty over inquiries into a party's subjective state of mind. This ruling significantly raises the bar for plaintiffs in such cases, as they can no longer rely on evidence of a defendant's alleged malicious intent if the price is objectively defensible in the market. The case effectively shields sellers from bad faith claims based on motive alone, shifting the focus of litigation entirely to objective market data and pricing structures.
